I have been trading stocks (long only) for a long time. Done OK with Gilead and plan to hold/add. Can someone give me some advice about buying call options. Never bought an option but thinking about it. Thanks
I'll tell you what I did and why it is great and hurts at the same time.
When Gilead was in the $60s I bought August $70 calls for $4 and sold them a few days later for $6. Big mistake because they are worth over $20 right now.
When Gilead was in the low $70s I bought Jan 2015 $75 calls and sold an equal number of Jan 2015 $77.50 calls, paying a total of $0.95 per set (called a spread). Those are doing pretty well with Gilead at $90 (the spread is worth about $2.10) but it pains me to see the price the $75 calls have gone up had I just bought them and not done the spread. I think this is greed kicking in as I should be happy with a 150% return.
Options need volatility. Unfortunately for GILD, it is not a high volatility stock. As you will see with many options traders here, you make an educated guess on the duration of time that you think the stock might move towards, does not necessarily mean it has to hit that price, but move towards that price in a quicker than expected time frame. For example, I bought some Aug 100 calls at .48, saw it dip to .08 and then rise to .55 and now it is down to .21. You need to watch it regularly and when there is some upward or downward momentum, think about the exit strategy. If I was clairvoyant, I would have bought at .08 and sold at .55... :)
Right now all calls are getting depressed(figuratively and literally) so if you go out to August/September, relative to last week, they are down quite a bit. If you think there might be a burst in the price for a short period of time, they will pop up.
Remember, 1 contract = 100 shares of the underlying stock. so if you buy 50 calls at say $1.00 that equals 5000 shares and you would have to pay $5,000.00(plus commission). if the price moves $0.10, you are up $500(10%), if it goes down $0.10, you are down $500.00. It is not uncommon for a call to move 50-80% in a day when the momentum picks up in either direction, so timing is everything...
I still have my Aug. 70's & 75's I have to get rid of pretty soon and I "do " have Nov's also. About the 10 cents, I have 100- 82.50's from 4.40, so I can't complain, but have a SOUR feeling as GILD should have gone up like everyone else; and they are deliberately being manipulated,why,I don't know! No one will admit that the huge shares outstanding is a big problem for this stock. Why they did this, we now regret! It is sort of like the Fed, make the dollar worthless printing money.I see a popup with AMZN on my screen; I suspect THEY do not have so many shares so the price is "ta da moon".
Please play on paper for one year. European restrictions on Russia could create lot volatility. Today in the morning by 10:00am those who own for example 88 or below calls have to come up with funds to exercise it or sell. Buying and selling can create more than 50 cents difference. It is like buying GILD for 9100 and selling at 9050, and commission. Options writing is wise thing if you have the stock and if you wish to right future 95 or 100 call.
Also you need to learn how write a put, if you have the funds to buy at chaper price.
My advice get book, or get one from CNBC. Please play on paper today any see how poor you will manage.
There is a good report to review, google search, Street Smart Report. If GILD opinions make money today then by Monday it will reverse.
In other words if GILD is hit down and 90 option and 89 option becomes worthless, then someone is collecting the NEXT option expiration of the same price.